C. It is a faire reward for the work employees perform and the benefit they provide for the employer. 2.To organization A.To attract capable employees to the organization B.To motivate employees towards superior performance levels C.To retain current employees 7.3.Factors Affecting Compensation Decisions A.External Factors1.Government: government rules, regulations, executive’s orders, and laws have their influence on an organization’s compensation policy. Every government provides laws for compensation in areas like, minimum wage rate, equal pay provision –to avoid pay differentials based on sex in jobs requiring substantially equal skill, effort, responsibility, and working conditions .etc 2.Cost of living:cost of living as measured in terms of consumer price index may affect the organization’s compensation policy as it tries to adjust its employee’s earnings to the rate of inflation. This process is called cost of living adjustment (COLA). As per the policy of the organization, compensation could be adjusted. 3.Comparable wage rate:the wage pattern in the industry and community could have an impact on the compensation policies and practices of organizations. Comparing wages and salary rates in a given areas may help in ensuring that the organization is offering a salary that is not substantially higher or lower than those paid by others in the same area. Comparison could also be done based on occupation to provide a comparable pay to similar occupations around the country. In order to insure that comparable level of payment is offered to employees, organizations conduct salary and wage survey on other companies to avoid costly mistakes. These could also be done to offer comparable benefit packages to employees 4.Market condition:Regardless of other factors involved, the supply and demand relationships in the labor market will determine the wage and salary level in organization. 5.Union’s influences:union and labor relations laws also influence pay plan design. Historically, the wage rate has been the main issue in collective bargaining. However,
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